Gold futures rise, score gain of over $8 for the week

Futures prices end near $660 as traders weigh inflation figures

PolyaLesova

SAN FRANCISCO (MarketWatch) -- Gold futures closed higher Friday to score a gain of more than $8 an ounce for the week, following economic data that showed high energy prices fueled a sizable increase in U.S. consumer prices last month.

Gold for August delivery added $2.80 to close at $658.70 an ounce on the New York Mercantile Exchange. The benchmark contract ended with the week $8.40, or 1.3%, higher.

And gold's strength will likely "show itself firmly," next week, said analysts at GoldForecaster.com, in a note to clients Friday.

"There is still a great deal of work to be done before gold resumes its attack on the $700 level, but there is no doubt that the sheer tenacity of the gold price shows us that the assault on $700 is likely, perhaps sooner than we think," they said.

Gold sales by central banks had pushed gold futures prices to a three-month low last week. Some analysts say the timing of gold's return to the $700 level and beyond has been delayed a bit. See Commodities Corner.

A gauge of inflation

Early Friday, the Labor Department reported that the consumer price index was up by 0.7% in May, marking its largest increase since Hurricane Katrina in 2005 and the second-biggest jump seen in 16 years.

But the core rate of inflation rose just 0.1%, indicating retail-level inflation's well contained if growth in energy and food costs is factored out. See Economic Report.

Energy prices continued higher Friday, with July crude closing at $68 a barrel, a level it hasn't seen since mid-April. Concerns about a slowdown in U.S. refinery activity as well as violence in the Middle East and Nigeria contributed to the rise. See Futures Movers.

"Inflation is outpacing wages by 1.3% on the year," said Jon Nadler, an analyst at Kitco Bullion Dealers.

"However, the spin will come from those who point at core inflation gaining at only a 2.2% pace on the year, and conclude that 'all is well,' and within 'targets,' " he said in a note to clients.

Investors, keeping a watchful eye on what the Federal Reserve might do in light of the latest data on consumer and producer prices, often buy gold as a hedge against inflation.

"The inflation rates ... are still running in the upper end of the acceptable range the Fed has put on inflation growth between 2% and 3%," said Neal Ryan, director of economic research at Blanchard & Co.

"But a willingness to allow slightly higher inflationary figures while the country is experiencing slowing growth is making the money managers on Wall Street happy," he said in e-mailed commentary.

As for the precious-metals markets, they "will interpret this as a real positive because now there is clear evidence the Fed will stay on hold for the foreseeable future regarding rate hikes," Ryan added.

And from a technical standpoint, "gold appears to be forming a base with buying interest from various sources providing good support around $645," said James Moore, metals analyst at TheBullionDesk.com.

At the same time, the "scale of institutional metal set to enter the market over the next 12 to 24 months does appear to have dampened the markets' bullishness," Moore said in a research note, adding that gold remains at risk to test the 200-day moving average around the $638.80 mark in the short term.

Dollar reacts to data

Trading in currencies provided little guidance for gold to end the week.

The dollar dipped against the euro but remained higher against Japan's yen after the consumer price data, which were partly offset by a report that manufacturing activity in the New York area was much stronger than expected.

Separately, the Commerce Department said the U.S. current account gap rose to $192.6 billion in the first quarter, up from a revised $187.9 billion in the fourth quarter of 2006. See full story.

Rounding out the action in metals, July silver rose 9.5 cents to close at $13.26 an ounce, finishing 1.7% above last week's close of $13.04.

July copper gained 2.95 cents to end at $3.422 a pound. It's up 5% from a week ago.

September palladium added $2 to close at $373.50 an ounce, almost $3 above last week's closing level. July platinum closed at $1,286 an ounce, putting it 80 cents above the level it closed at last Friday.

A possible strike by miners in South Africa and the potential for supply disruptions may provide support for platinum prices, according to Mark O'Byrne, director at Gold & Silver Investments Ltd. in Dublin. He points out that 90% of the global supply of platinum comes from South Africa.

Anglo Platinum raised its pay offer to 7% yesterday, he said in a research note, adding that "the large gap between what the unions are demanding and what is being offered suggests the negotiations will drag on, providing additional support."

On the supply side, gold warehouse inventories were unchanged at 7.63 million troy ounces as of late Thursday, according to Nymex data. Silver supplies fell by 1.8 million troy ounces to stand at 128.4 million troy ounces, while copper supplies dropped to 24,830 short tons, down 340 short tons.

The Amex Gold Bugs Index
HUI, -0.03%
closed at 336.27 points, up 1.6%, while the CBOE Gold Index
GOX, -0.56%
added 1.8% to end at 144.62 points and the Philadelphia Gold and Silver Index
XAU, -0.06%
gained 1.7% to close at 140.77 points.

As for sector ETFs, the StreetTracks Gold Trust ETF
GLD, +0.22%
closed up 0.3% at $64.80, the iShares Silver Trust ETF
SLV, +0.00%
rose 0.7% to finish at $131.61 and the Market Vectors-Gold Miners ETF
GDX, +0.37%
climbed 1.2% to close at $38.84.

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.